Jack, who is single, and whose AGI is $55,000 in 2002, paid interest of $3,500 on...

Jack, who is single, and whose AGI is $55,000 in 2002, paid interest of $3,500 on a student loan, $1,500 on credit cards used to pay for a vacation and $3,000 on a car loan. The total interest deductible by Jack is $3,000. True/False and Explain.

Expert Solution

In the given question there are 3 types of interest which we have to decide are deductible or not.

The first one is $3500 interest paid on a student loan in the year 2002.

Now in regards to student loan, since Jack is single , if his MAGI is less than $70000 he is entitled to a interest deduction on student loans of upto $2500. From the question we can see that his AGI is $55000 and hence he will be entitled to $2500 of interest deduction.

The second one is interest of $1500 paid on credit card which was used to pay for a vaccination for personal use.

Now this cannot be deducted. The reason being no interest on use of credit card for personal reasons are tax deductible. If the credit card was used for some kind of business purpose then there would have been deductions available.

The third one is interest of $3000 on a car loan.

In regards to car loan, deductions are only available if the car is being used for business purpose and not for personal use. Nowhere in the question is it mentioned that the car is being used for business purpose and hence we have to assume that it is the loan on a car which Jack uses personally. Hence this is also not deductible.

So, the answer to the question would be False. Total interest deductible by Jack from the above reasonings and calculations would be $2500 for the year 2002.

ekkarill92 answered 2 years ago

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